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Getting to Understand Cryptocurrency

Until a certain time on December 17, everything was euphoric about cryptocurrency. That day it reached its maximum at more than the US $20,000 per unit and in the year its quotation had multiplied more than 20 times. However, on February 6, its value fell to just over the US $6,000, a decrease of almost 70% in 51 days. Suddenly, the bubble exploded, affecting the rest of the cryptocurrencies with a similar impact. The boom deflated and despite a temporary recovery, bitcoin is again at levels below $7,000. Investor confidence was damaged.

The steep ups and downs are distinctive of this new young market, revolutionary and disruptive to traditional asset models. Understanding how this technology works serve to discover that cryptocurrencies are more than a financial asset and that seeking to obtain a return from them is, at least for now, a very risky business. Its current usefulness passes on the other side.

And not only Bitcoins that have had the leading role. Altcoins also have paved their way. There are new cryptocurrencies and crypto projects showing every day, serving specific purposes. In addition to this, business people tap on the cryptocurrency community to take it to the index market. They even have created a custom index for cryptocurrencies.

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Cryptocurrency and basic features

The key to understanding the operation of cryptocurrencies is to know that their code does not simply serve as a digital currency and that there, in its binary DNA, lies its innovative spirit. Its existence is possible thanks to the blockchain (chain of blocks), which was applied for the first time in 2009, just with bitcoin. Blockchain is a data structure, a shared registry that validates the user community. In this way, each exchange must be verified by the entire network to be accepted and in doing so it is added to the code forever.

In the case of cryptocurrencies, transactions are confirmed by the set of individual users -automatically- from their computers, and upon validation, they are recorded in a block of information. The blocks are added to the chain. All the operations that have been carried out in the history of cryptocurrency are still there, in the code that is used today, transparent to the view of those who want to consult them.

The whole process is decentralized, oblivious to any type of control of entities such as banks and governments. The community is its own controller. Use as digital tokens are only one of the blockchain’s capabilities because in itself it is only a safe, reliable, and free form of external interference to register information in a dynamic code. They are also anonymous.

The anonymity of the blockchain and therefore of the cryptocurrencies means that a user does not need to reveal their identity at any time during the process. This, unlike the other means of electronic payments, allows payments to be made as discreetly as if cash were used. The advantage over cash disbursements is that transactions are global, immediate, and immune from restrictions. Many times, this condition, is related to cryptocurrencies with shady deals. Like the cash.

Mining, use, and payments

The new bitcoins are generated through the process of “mining”. Mining is the process of verification of operations with bitcoin (or another type of cryptocurrency). When a person sells and another purchase, it requires computational resources to guarantee that transaction and register it in a new block of the chain. The “miners” are responsible for this work and charge a percentage as a reward, a commission that is usually very low. This process is carried out on a large scale by the “mining farms” (centers with a high processing capacity) or even by private miners with specially prepared equipment.

Without such a complication, cryptocurrencies can be purchased on sale-buying websites were, as if they were a foreign currency. The purchase or sale of bitcoins or fractions of these (or any other cryptocurrency) is made by credit card, bank deposit, PayPal, etc. When buying a code is generated that must be protected in an electronic purse. There are several types of portfolios and services that allow cryptocurrencies to be stored in offline hardware, in software, online, and even in banks.

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After acquiring cryptocurrency, Ethereum, and bitcoin (and a very long list of cryptocurrencies) you can make a payment for a service or an online purchase in the growing list of companies that accept them (Microsoft is one of them). Its current usefulness is marked by this possibility, that of being used immediately as a digital currency, that is why those who defend its use dismiss the risk of volatility. The true value of cryptocurrency is not in their quotation, but in being an instrument of fast, safe, and anonymous change with low cost per transaction.

Cryptocurrency is understood as a financial asset and the speculation generated around them is an unintended consequence. The specialists hope that this condition and the volatility that they present today will disappear in the near future and may reach the mass. The market is still very new.

Maybe, as happened with the dot-com bubble, the stumble serves to purge the market of curious and speculators. Far from being over, the cryptocurrency story seems to have just begun.